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| Return
On Equity - ROE |
= |
Net
Income |
|
Shareholder's
Equity |
|
Indicates
what return a company is generating on the owners' investment.
Things
to remember |
- If
new shares are issued then use the weighted average of
the number of shares throughout the year.
- For
high growth companies you should expect a higher ROE.
- Averaging
ROE over the past 5-10 years can give you a better idea
of the historical growth.
|
|
|
[Click
on the image(s) above to see the financial statements] |
For
Cory's Tequila Co. |
$2,096 |
=
0.18 |
$11,678 |
|
Return
on Equity Analysis:
Sometimes ROE is referred to as Stockholder's return on investment,
it tells the rate that shareholders are earning on their shares.
Cory's Tequila Co. is earning a very respectable 18% on shareholder's
equity. But ROE is often misunderstood, for example if the return
on equity is 10% then ten cents of assets are created for each dollar
that was originally invested. Companies that generate high returns
relative to their shareholder's equity are companies that pay their
shareholders off handsomely, creating substantial assets for each
dollar invested. These businesses are more than likely self-funding
companies that require no additional debt or equity investments.
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